HOUSTON (Reuters) - Venezuela’s state-run oil company PDVSA has stopped purchases of Algerian light crude to blend with its extra-heavy oil because of technical problems and disagreements with the seller, sources said.

A worker walks past a mural with a PDVSA logo at its gas station in Caracas August 29, 2014. REUTERS/Carlos Garcia Rawlins

The decision ends a cost-saving effort launched in October to use Algerian Saharan Blend instead of costlier heavy naphtha as a diluent for domestic Orinoco Belt crude, the oil that accounts for about 40 percent of Venezuela’s output.

PDVSA had mixed up to 4 million barrels of Algeria’s light crude into its extra heavy oil to make blends for export, mainly to the United States and China, according to Reuters vessel tracking data.

In January it resumed international tenders to buy heavy naphtha to use as a diluent, according to documents seen by Reuters, raising questions about how the company would continue to cut operational costs as sinking oil prices erode Venezuela’s revenue and force the government to seek foreign credit.

“PDVSA is informing partners and traders that it will not buy any more Saharan Blend after logistical problems,” said a trader who deals with PDVSA and who requested anonymity because was not authorized to speak publicly on the subject.

“Naphtha purchases, instead, can be unloaded and transported to mix with Orinoco belt’s extra heavy oil,” he said.

Experts have pointed out that the OPEC-member nation lacks adequate infrastructure to regularly unload large crude cargoes and, especially, to store and transport the imported oil to mixing hubs deep in the Orinoco belt.

A source at Algeria’s state-run Sonatrach confirmed that the company “has stopped exports to Venezuela” and another industry source said the disagreement was over price.

Despite falling global crude prices, in the last quarter of 2014 Algeria raised its official selling prices after signing a contract with Venezuela.

But a source close to Algeria’s Energy ministry said light crude exports may resume to Venezuela later this year or in 2016.

PDVSA did not respond to requests for comment on crude imports.

NAPHTHA AND RUSSIAN CRUDE

While reverting to using heavy naphtha and local Mesa 30 crude as diluents to formulate diluted crude oil (DCO) and Merey 16 crude, another exportable blend, PDVSA will also continue to buy Russian Urals crude for its Isla refinery in the Caribbean island of Curacao, the trader said.

Urals purchases, which also started last year, are partially replacing Venezuelan crudes as refining feedstock.

In a tender launched last month and seen by Reuters, PDVSA requested 3 million barrels of heavy naphtha for receipt from February to July, with an option to buy six additional 500,000-barrel cargoes during 2015.

A trader close to the offer said it was unclear who won the tender, launched after seven months of inactivity, but the usual PDVSA providers, such as Noble Americas, took part in it.

PDVSA will pay for the cargoes through a letter of credit, according to the terms.

PDVSA CASH CRUNCH

Beyond seeking new import streams, PDVSA’s U.S. refining unit, Citgo, is trying to sell $1.5 billion in bonds maturing in 2020 and get an additional $1 billion loan. The money, secured by midstream assets, would be transferred to the parent firm.

But experts said PDVSA is far from solving its main financial problems in the short term, as it deals with declining exports and escalating cash-flow problems that make it difficult to find long-term affordable oil providers.

“PDVSA’s payment delays contributed to the failed deal with Sonatrach,” another source said.